Does Cap and Trade Exacerbate Environmental Injustice in California?, with Danae Hernández-Cortés

Notable Quotes

• Cap and trade can shift where pollutants are emitted: “While greenhouse gases are a globally mixed pollutant and thus not subject to local pollution concerns, greenhouse gases are often co-emitted with local air pollutants. This cap-and-trade program [in California] could alter local air pollution disparities by changing the amount of emissions and who is emitting those emissions.” (5:02)
• Pollution that gets measured in a community can get managed: “We don’t have a lot of monitoring stations in all communities in California. Trying to understand how communities are being exposed to pollution via these monitoring policies is important, because this provides information to the community, and then the community may raise concerns if they see that they are being exposed to more pollution than what is healthy for them.” (21:51)
• Environmental injustice calls for targeted policymaking: “As a safeguard against potentially widening environmental justice gaps, policies that specifically address environmental justice concerns should be considered in tandem with market-based policies. In short, environmental justice problems need environmental justice policies in order to decrease environmental disparities.” (26:12)

Top of the Stack

• “Do Environmental Markets Cause Environmental Injustice? Evidence from California’s Carbon Market” by Danae Hernández-Cortés and Kyle C. Meng
• “Cracking the Case of the Vanishing Air Pollution Data, with Eric Zou” on Resources Radio
• “The Bat Man” episode of the Radio Ambulante podcast (Read the English translation of the transcript)

The Full Transcript

Daniel Raimi: Hello and welcome to Resources Radio, a weekly podcast from Resources for the Future. I’m your host, Daniel Raimi. Today, we talk with Dr. Danae Hernández-Cortés, an assistant professor at the School for the Future of Innovation and Society and the School of Sustainability at Arizona State University.

In today’s episode, Danae will help us understand the results of a study she carried out with Dr. Kyle Meng on whether California’s carbon market has made environmental justice problems better or worse. I’ll ask her about the theory for how carbon markets could exacerbate environmental justice issues, the data and analysis that she and Kyle used to try to answer the question, and what the policy implications are. Stay with us.

Danae Hernández-Cortés, from Arizona State University, welcome to Resources Radio.

Danae Hernández-Cortés: Thank you so much for having me.

Daniel Raimi: Today we are going to talk about a fascinating paper that you’ve published with Kyle Meng from the University of California, Santa Barbara, who’s been on the show before.

But before we talk about that paper, we always ask our guests how they got interested in energy or environmental topics either at a young age or later in life. What inspired you to take this professional route?

Danae Hernández-Cortés: Thank you for asking this. I am from a small city in the southeast of Mexico, Orizaba, which is a relatively small city in the state of Veracruz, and it is surrounded with mountains and sugarcane fields. My city is close to many rural areas, and during high school, I had the opportunity to work together with some of the communities in these rural areas while doing some volunteering work. It was during these experiences that I realized the strong relationship between the environment and poverty and how many of the problems they had were due to environmental issues.

Some of these issues were, say, extreme weather events or lack of water or sanitation infrastructure. I became interested in trying to understand why these issues were so interconnected and how we could reduce poverty overall. At that age, it seemed like if I wanted to understand poverty, you had to study economics.

So, I went to study economics. During my undergraduate studies, I started to work on environmental economics, and some of the projects I worked on were related to topics of climate change and rural welfare. I realized that these types of topics were the ones that I was interested in studying, and I realized that, in order to study them well, I wanted to do my PhD. I went to do my PhD, and that’s how I became more interested in environmental economics.

Daniel Raimi: I didn’t realize that the mountain (and inactive volcano) near your hometown in Orizaba, Pico de Orizaba, is the third tallest in North America. Is that right?

Danae Hernández-Cortés: Yes, that’s correct.

Daniel Raimi: And you’re there right now, so you’re looking at the mountain as we talk.

Danae Hernández-Cortés: I can send you a picture when we finish, and you’ll see the mountain.

Daniel Raimi: Please do. If you’re listening anywhere near a screen, you can search for an image of the mountain Pico de Orizaba. It’s beautiful.

We could talk about your surroundings, and I could get jealous for the next 30 minutes, or we could talk about the paper that you’re here to discuss. The paper is called, “Do Environmental Markets Cause Environmental Injustice? Evidence from California’s Carbon Market.”

Can you get us started with some basic background on the California carbon market and why many folks over the last 10 or 15 years have been concerned that the carbon market could exacerbate environmental injustice?

Danae Hernández-Cortés: It started in 2006, when California passed Assembly Bill 32, which created the first economy-wide greenhouse gas target in the United States. This required California greenhouse gas emissions to return to 1990 levels by 2020.

One of the central parts of these programs to achieve the reductions of greenhouse gases was the cap-and-trade program. It was introduced in 2013 and administered by the California Air Resources Board. The program requires the participation of stationary greenhouse gas emitting facilities that produced at least 25,000 tons of carbon dioxide emissions during any year between 2009 and 2012, which was before the program.

The program became more stringent over time and mandated a declining cap on aggregate emissions across eligible facilities. The program was the world’s second-largest carbon market by permit value, behind the emissions trading system in Europe.

While greenhouse gases are a globally mixed pollutant and thus not subject to local pollution concerns, greenhouse gases are often co-emitted with local air pollutants. This cap-and-trade program could alter local air pollution disparities by changing the amount of emissions and who is emitting those emissions.

This could alter how pollution is distributed in the environment. This cap-and-trade program does not directly regulate local criteria; air pollution emissions and any changes in the spatial distribution of local air pollution concentrations might be due to the program’s reallocation of local air pollution emissions that are co-produced with greenhouse gas emissions.

This then leads to some environmental justice concerns. Low-income and minority communities are often the ones located near the most-polluting facilities. If these most-polluting facilities are polluting more as a result of the program, these communities could experience a higher environmental burden, which then could exacerbate environmental disparities that they are already facing. This was the main environmental justice concern.

Daniel Raimi: That makes a lot of sense. Can you give a bit more intuition on why a cap-and-trade program could concentrate the location of emissions? What are the economic factors that might lead to that outcome?

Danae Hernández-Cortés: Whether cap and trade will decrease or increase pollution emissions depends on whether greenhouse gases (which is the regulated pollutant) are co-emitted with other local air pollutants. We don’t know if the facilities that are being regulated by this program will increase or decrease their emissions due to the program, given that you can accumulate permits to emit if you are not achieving your cap.

This could exacerbate pollution emissions if some facilities are polluting more as a result of the program. This is hard to calculate exactly, because you will need information on the abatement cost of these facilities and how these abatement costs are correlated with the pollutants that are also affecting health, such as the local air pollutants.

Daniel Raimi: That makes a lot of sense. The paper is rich with detail, and I’d encourage folks to check it out. We’ll have a link to it in our show notes. Without getting into too much technical detail, could you give us a flavor for the type of data and the analytical tools that you and Kyle used to get at this question of whether the carbon market was exacerbating environmental injustice?

Danae Hernández-Cortés: We use data from the California Air Resources Board that provides facility-level information on pollutant emissions, as well as regulation statuses and facility characteristics. The facility characteristics are important, because we need to know where the facilities are located and their stack characteristics, such as the height of the stack, the diameter of the stack, etc. This data set allows us to use the location of these facilities to understand whether there was an impact of cap and trade on pollution emissions.

We examined whether cap and trade had an impact on pollution emissions by comparing regulated and unregulated facilities before and after the program started. This allowed us to predict emissions coming uniquely from this cap-and-trade program. Then, we used the predicted emissions coming from the program, together with an atmospheric-transport model, which allowed us to obtain how emitted pollution traveled according to atmospheric and prevailing winds to all of the communities that are located downwind from these facilities.

Finally, after we were able to obtain the concentrations of pollutants that were coming from the program and how they were distributed in the environment, we were able to compare the differences in concentrations in disadvantaged communities before and after cap and trade started. In the paper, we say the “environmental justice gap,” and this is a term that we use to compare the concentrations that disadvantaged communities are exposed to in comparison with non-disadvantaged communities.

Daniel Raimi: That leads to the next question: How are you defining a disadvantaged community and a non-disadvantaged community in California? These definitions matter so much, as we’re seeing with the implementation of the Inflation Reduction Act and other legislation. Can you talk us through what it means in California to be a disadvantaged community, and where those communities are geographically concentrated around the state?

Danae Hernández-Cortés: For our setting, we selected a policy-relevant definition of “disadvantaged community.” We used California Senate Bill 535, which passed in 2012. This requires a portion of the revenue from the auction of cap-and-trade permits to be directed towards benefiting disadvantaged communities. This bill formally defines a disadvantaged community using the CalEnviroScreen, which is a scoring system based on multiple pollution-exposure and socioeconomic indicators developed by the California government.

In the benchmark analysis, we use CalEnviroScreen version 1.1, which assigns disadvantaged status at the ZIP code level and is constructed using data from before 2013—before the program indicators. This allows us to mitigate concerns that cap and trade might directly impact disadvantaged-community designations; specifically, a ZIP code is considered disadvantaged if it contains all or part of a census tract with a CalEnviroScreen above the top 25th percentile. These communities are located in several areas of California, particularly in some areas of Los Angeles and the San Joaquin Valley and some areas near the Bay Area.

Of course, there are many ways to define a disadvantaged community. As a robustness check, we also use a later version of CalEnviroScreen, which has the benefit of defining a disadvantaged community at a finer census-tract level. This allows us to more finely define these disadvantaged communities, and we also use other measures of disadvantage or environmental justice that they have been used before, such as the percentage of people of color that live in those areas before cap and trade started.

Daniel Raimi: Including those different definitions can be so useful in understanding all the dynamics at play in these communities.

You’ve given us helpful background on the context for the paper and some of the data and analytical tools. Let’s get into some of the key results. What results from the paper would you like to highlight?

Danae Hernández-Cortés: First, we find that, prior to the program, the gap in greenhouse gas emissions between regulated and unregulated facilities was increasing at an annual rate of 19 percent. However, we find that, following the introduction of the program, this tended to slow down. From 2012 to 2017, the cap-and-trade program reduced emissions annually at a rate of 9 percent for the case of greenhouse gases and about 3–5 percent for the case of local air pollutants. This was for the average sample of regulated facility that we used in our study.

Second, we find that, across the criteria pollutants that we studied—which are particulate matter 2.5 (PM2.5), particulate matter 10 (PM10), nitrogen oxides, and sulfur oxides—the environmental justice gap, which is the difference in concentrations of pollutants that disadvantaged communities are exposed to versus the exposures for non-disadvantaged communities, were widening from 2008 to 2012, which is the period prior to the cap-and-trade program.

However, following 2013 and after the introduction of the program, the environmental justice–gap trend fell. This drop in the environmental justice gap is large enough that we are able to see that environmental justice gaps were actually narrowing following the introduction of the cap-and-trade program. This meant that disadvantaged communities experienced a higher reduction of pollution coming from the program than non-disadvantaged communities.

Daniel Raimi: There’s a lovely series of graphs that you and Kyle construct that illustrates those trends before and after the implementation of the program. It’s in Figure 3 of the paper—people should definitely check it out.

I’m curious: This result is so interesting, and I’m wondering how it’s been received by different stakeholders across the environmental justice–advocacy community, research community, and elsewhere. I’m curious whether you’ve gotten any pushback from environmental justice advocates who might anecdotally disagree or not have experienced some of the same things that you’re finding. Could you talk about the reception in these communities when you’ve presented it, both to policymakers, researchers and other stakeholders, particularly those who live in disadvantaged communities?

Danae Hernández-Cortés: We have presented our paper to several communities and to some other scholars that have been studying this for a long time. We find some differences in methodological aspects, in terms of some other studies. However, we have been fortunate to have talked to them and gotten some of their concerns, and we’re even changing some of our methods to explore those concerns.

For example, when we first were presenting this paper, we were only using the ZIP code definition of “disadvantaged community.” A lot of people told us, “Maybe you would like to include a finer spatial scale, like census tracts.” After that, we said, “You’re totally right. It’s better if we look at a finer level of disaggregation.” So, we went on and tried that, and we found similar results. That was fruitful.

We have been in constant communication with some of the scholars that have been studying this for a long time and some of these communities, as well. One of the main concerns of these communities is that environmental justice sometimes has been approached from the perspective of implementing a policy and trying to see the impacts to environmental justice. That might not be the best way to approach these concerns.

In the paper, we say that environmental justice problems need environmental justice–specific policies. We take a lot of care to represent the voices of those people who are affected and the communities that are affected. It’s important. Looking at these as environmental justice–specific policies is also important.

Daniel Raimi: Correct me if I’m wrong, but my understanding is that the cap-and-trade program clearly did not have an environmental justice goal when it was constructed. Is that right?

Danae Hernández-Cortés: Exactly. Some of these environmental justice concerns have allowed communities to talk to policymakers about their concerns and how to possibly address them.

Daniel Raimi: I’d love to ask you more about those sort of environmental justice–specific policies in a moment. First, I have a more technical question, which is about your use of air-dispersion models in this paper, which I think play an important role in understanding some of the results that you’re finding. Can you talk about your use of air-dispersion models? What are they and what do they do? Then, if could you speak to the reliability of those models—how well or how much do we know about their ability to accurately represent how pollutants move in the air and how they accumulate in people’s bodies over time?

Danae Hernández-Cortés: Modeling air-pollution dispersion is very important for our results. But first, let me talk about the other ways that researchers can assign pollution exposure.

You could assume that emissions stay within the same spatial units in which they are emitted. For example, if you have one facility in a ZIP code, you can assign the emissions of that facility to that ZIP code only. Second, you could assume that emissions travel within a uniform distance from that facility. For example, you can draw a circle surrounding the facility and assign pollution to those units within that circle. Finally, we used an air-dispersion model to assign pollution concentrations. This considers atmospheric patterns, prevailing winds, and geography to model how pollution travels. In the paper, we compare our results across these methodologies and find that modeling pollution dispersal is very important.

In order to verify the reliability of these methods (because, of course, sometimes they could not be super reliable), we try to compare the pollution that we predict with the pollution recorded by pollution monitors. We find that there is a positive association between predictions and recorded pollution, which is what you would expect.

One important aspect of the paper is that we also use other models that consider the secondary release of PM2.5, to compare our results. At the end, we find that there are similar results; the results are the same magnitude. We are comfortable saying that this is a good way of modeling pollution exposure—but again, we also try to compare it to other sources, such as the pollution-monitoring network, to make sure that we are correctly modeling pollution.

Daniel Raimi: For listeners who might not be familiar with the secondary creation of PM2.5, can you describe what that means and why it matters for public health?

Danae Hernández-Cortés: We have some primary emitters of pollution. For example, some facilities may emit some pollutants directly, such as sulfur oxide, nitrogen oxides, or PM2.5.

However, some of these pollutants create chemical reactions in the atmosphere that can create other pollutants, such as ozone or PM2.5. In our case, we cannot measure ozone, but we can measure the secondary release of PM2.5 using an atmospheric-transport model developed by Chris Tessum and his coauthors, which is able to capture these complex interactions in the environment.

Daniel Raimi: So, essentially, nitrogen oxides or sulfur oxides will be released from some sort of point source, they’ll go up into the atmosphere, and the model will predict how and when they break down into PM2.5 and how that PM2.5 is distributed. Is that about right?

Danae Hernández-Cortés: Exactly.

Daniel Raimi: The next two questions I’d like to ask are both about policy. The first one is about environmental justice–specific policies in California. Do you have any insight into the types of policies that the state is pursuing to provide more directly targeted environmental justice policies that reduce the pollution gap that you’re measuring in this paper?

Danae Hernández-Cortés: Yes. A while ago, there was California Assembly Bill 617, which basically wanted to create a better monitoring network near disadvantaged communities and near environmental justice communities that are located near polluting facilities. The bill would allow the residents living in those areas to understand whether these facilities were polluting more and to understand the amount of pollution that they were being exposed to using these monitoring networks.

The policy was interesting, because it will allow people to understand their pollution using monitoring information. That was one of the issues that we first experienced when we did this study. We had to model pollution using this complex atmospheric-transport model. One of the reasons why this was the case is that we don’t have a lot of monitoring stations in all communities in California. Trying to understand how communities are being exposed to pollution via these monitoring policies is important, because this provides information to the community, and then the community may raise concerns if they see that they are being exposed to more pollution than what is healthy for them.

Daniel Raimi: And not only is there a relative scarcity of pollution monitors around the country, but—we actually did an episode with Eric Zou on the podcast maybe a year ago on this—there’s evidence that about how local governments sometimes switch off pollution monitors when they’re concerned that they might trigger some kind of policy action. This whole issue of measurement is so important and complex.

Danae Hernández-Cortés: This is a very complex question, and I think that there are many policies that can be implemented to try to address environmental justice disparities, but in order for us to measure if they are successful or not, we first need to understand the baseline levels of pollutions, and we cannot do that if we don’t have the information. Looking at this information can be very important.

Daniel Raimi: What’s the saying? What gets measured gets managed—something like that.

Danae Hernández-Cortés: Exactly.

Daniel Raimi: I have one more policy question, and this is asking you to extrapolate beyond your study, but I’m curious to hear your thoughts on it. Kyle’s paper is focused on California; it’s exclusively about California. But I’m curious whether you have any thoughts as to whether these results—that cap and trade has reduced the environmental justice gap—might be likely to hold in other jurisdictions where there is carbon pricing, such as Europe, the northeastern United States, or even China or other parts of the world that are implementing these programs. Can you speak to that issue of whether these results might be relevant for other parts of the country and other parts of the world?

Danae Hernández-Cortés: This is a great question. Whether cap and trade reduces or increases environmental disparities depend on several factors. For example, when you evaluate a greenhouse gas cap-and-trade program, the environmental justice–gap effect depends on whether greenhouse gases and local air pollutants are coproduced.

Second, in practice, it is important to be aware of the special relationship between polluting facilities, their marginal abatement costs, and where disadvantaged communities are located with respect to these facilities—whether they are downwind or not. These characteristics can be very different in different settings. However, our results might point to some explanations that can help generalize.

For example, we show that in the case of the cap-and-trade program among the facilities we study, cap and trade reduces greenhouse gases and local air pollutants. Second, we find that disadvantaged communities, on average, live in areas that are more polluted or that are located downstream of peak polluters before the program began. Third, we find that accounting for heterogeneous emissions results in a higher effect, which suggests that areas located near the most-polluting facilities might experience a higher decrease of pollution.

I would also like to emphasize that environmental markets, like the cap-and-trade program that we are studying, might not always reduce environmental justice gaps. These consequences for the gap detected in California are emerging from the state’s special distribution of polluting facilities and the demographic characteristics of the communities that are located downstream of these facilities.

In other settings, an environmental market could widen the environmental justice gaps, and it’s very difficult to observe facility-level marginal abatement costs. This makes it hard to anticipate how proposed market-based policies will affect environmental justice gaps. In the paper, we mentioned that, as a safeguard against potentially widening environmental justice gaps, policies that specifically address environmental justice concerns should be considered in tandem with market-based policies. In short, environmental justice problems need environmental justice policies in order to decrease environmental disparities.

Daniel Raimi: That makes a lot of sense. I wonder how much the topography and physical geography of the place matters. In California, you’ve got these broad valleys where pollution might be trapped for some period of time, and you have certain winds that are coming in other parts of the state that might clear pollution away more quickly. Do you think that’s a big issue that will vary across regions as well?

Danae Hernández-Cortés: Yes, of course. Also, what are the other policies that are implemented together with these environmental programs? For example, in the case of California, we had Senate Bill 535, which dictated some of the revenue from the cap-and-trade program to these disadvantaged communities. However, some people in the community often suggested that these policies were not so effective at reducing local air pollution. Being aware of these type of policies that are released in tandem with carbon markets is important. Geography, as you said, plays an important role in that.

Daniel Raimi: This is such a fascinating paper, Danae. We appreciate you helping us understand it. We’d encourage people to check it out in the show notes. The paper’s called “Do Environmental Markets Cause Environmental Injustice? Evidence from California’s Carbon Market.”

Before we let you go, Danae, we’d love to ask you the last question that we ask all of our guests, which is to recommend something that you’ve read, watched, or heard that you think is great and that our audience might enjoy. What’s at the top of your literal or metaphorical reading stack?

Danae Hernández-Cortés: I would like to recommend one of the latest episodes of Radio Ambulante, which is a National Public Radio podcast that tells the stories of Latin America. The podcast episode that I would like to recommend is “El Hombre Murciélago,” or “The Bat Man.” This episode tells the story of Rodrigo Medellín, a Mexican professor who was one of the leading forces behind preserving the Mexican long-nosed bat, which pollinates agave. Agave is the plant from which tequila and mezcal are made. In 1988, this bat was designated as an endangered species by the United States and later by Mexico. Rodrigo’s work allowed the preservation of this type of bat and, probably, the future of mezcal and tequila. While this episode is in Spanish, there’s also a translation of the episode. I wanted to recommend it to your listeners that are Spanish speakers or those who would like to learn Spanish for their New Year’s resolution.

Daniel Raimi: That’s such a great recommendation and a great idea for New Year’s resolutions for folks. Can we thank this professor for the ongoing availability of tequila and mezcal? Mezcal is one of my favorite drinks.

Danae Hernández-Cortés: I think you can. It was a very big issue at the time. Around 1990, there was a huge decline in the bat population, which was caused by several factors. Rodrigo worked together with communities to meet the stakeholders in tequila and mezcal production. They worked together to try to recover the species and try to increase the number of the bats. Right now, the numbers look much better. It’s also interesting, because it’s a bat that travels between Mexico and Arizona. It’s like me: I travel between Mexico and Arizona.

Daniel Raimi: That’s fantastic. So, this New Year’s, we’ll need to raise a toast to the long-nosed bat and Dr. Medellín for ensuring our steady supply of agave-based spirits.

Danae Hernández-Cortés from Arizona State University, thank you so much for coming on the show, for these great recommendations, and for your fantastic work with Kyle Meng.

Danae Hernández-Cortés: Thank you so much for having me.

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